It's easier to get a tee time when everyone else is in jail.                     Photographer: Butch Dill/Getty Images
It's easier to get a tee time when everyone else is in jail.                     Photographer: Butch Dill/Getty Images

Today the Securities and Exchange Commission and the U.S. Attorney for Massachusetts brought insider trading charges against two men who allegedly shared inside information when they played together on the same co-ed softball team. No, of course I'm kidding, come on, they were golf buddies. They're always golf buddies!

The SEC alleges that Patrick O’Neill, then a senior vice president at Eastern Bank, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company. O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities.

That local country club appears to be the Oakley Country Club in Watertown, Massachusetts.1 Remember when I wrote about golf buddies accused of insider trading last month? GUESS WHAT COUNTRY CLUB THEY BELONGED TO.2 The Oakley Country Club would seem to be the biggest hotbed of alleged insider trading since SAC Capital.3

That's not the only good thing in this case, though, I mean, your mileage may vary, but I find it pretty good. Bray is 76 years old and owned a construction company until 1999 or so. He owned some stocks but was not what you'd call a frequent size trader. Nor for that matter was Wainwright Bank & Trust. The SEC complaint has some transcripts of Bray's conversations with E*TRADE customer service that are worth reading:

I'm trying to put an order in to buy some stocks and I can't do it through my electronic thing how I normally do because if I put the order in I know it's not going to fill. It's a, you know, they don't have that many shares. The market doesn't do that many shares. So I put an order in for 25,000 shares and I believe that's cancelled .... Now I want to buy that stock so how do I go about buying that stock? ... I put an order in like for 25 -- that's kind of ridiculous because it doesn't trade that much, right? ...

I normally trade over the phone -- punch the numbers -- punch the letters -- and then the trade gets executed. In this particular case, it seems the order was too large for that particular stock so I want to know how ... do I go about doing it. ... I placed an order for Wainwright Bank -- WAIN -- 25,000 shares. And I had a representative on the phone and I asked her to cancel that. ... I know this kinda sounds crazy-how much of that stock can I buy right now? What's available at what price? Do you know that? ... If I want to buy -- I can't put an order in for 25,000, that's crazy right? ... What would you recommend that I do to get a small order, or however many I can, how do I go about that?

He ended up spending $288,058.40, and making a profit of $299,741.89 after the acquisition was announced.

As normally happens after acquisitions, the Financial Industry Regulatory Authority compiled a list of people who made fishy-looking Wainwright trades and circulated it among Eastern Bank executives to ask if they knew anyone on the list. O'Neill ignored the list and, when pressed by his supervisors, said things like, "I have a bad case of pneumonia and was told to stay home for the week, as it is bacterial and contagious." When he came back this happened:

O'Neill met with his supervisor in person on September 13, 2010 at approximately 8 a.m. O'Neill's supervisor instructed O'Neill that if he did not respond to the FINRA letter by the end of the day, Eastern Bank would seek employment-related discipline, including termination. O'Neill said that he needed to speak to his wife, and he left the office at approximately 9:30a.m.4 At approximately 3 p.m. that day, O'Neill again spoke to his supervisor and requested an additional day to "'consider" Eastern Bank's instruction that he provide the required information as he was still recovering from his illness and considering his response. Eastern Bank agreed to extend the time for a response until 5:00p.m. the next day.

On September 14,2010 at 10:57 a.m., O'Neill emailed his supervisor stating without explanation that he was resigning from Eastern Bank "effective immediately."

Surprisingly this did not end the matter! And now O'Neill and Bray are facing civil insider trading charges, and O'Neill is also facing criminal charges.

You may remember that the last Oakley Country Club case also featured a corporate executive who passed inside information to his golf buddy. But there's an important difference. The corporate executive there was never charged with insider trading. (In fact, he was never even named in the complaint.) The SEC didn't claim that that executive breached his duty to keep the corporate information confidential. Instead, it argued that the golf buddy breached his duty to keep the executive's information confidential.

The theory there seemed to be that, if you're a corporate executive, you can share inside information with your golf buddies the way you share it with your lawyer, say, or your priest, or your prostitute: The golf buddy relationship is one of trust and confidence, and disclosing corporate information inside that circle of trust is almost like not disclosing it at all. On this theory, the golf buddy who breaches that duty of trust -- not the corporate insider -- is the one guilty of criminal insider trading.

On that theory, and the facts alleged in this case, Bray would be guilty of insider trading: He took information told to him in the sacred confidence of the golf course,5 and used it for his own nefarious ends. But O'Neill would be blameless: Just like the unnamed executive in the last case, he could not have predicted that anyone would trade on inside information that was discussed on the golf course.6

Instead O'Neill has been charged criminally, and Bray has not, the opposite of the last Watertown golf insider trading case. It looks like the financial regulatory authorities lack a consistent theory of the golfing relationship. They should probably get to work on fixing that. The issue does, after all, keep coming up.

1 The club isn't named in the SEC or criminal complaints. However the U.S. Attorney says the tip was shared "over the weekend of June 11, 2010, more than two weeks before the acquisition was publicly announced, during a face-to-face encounter at the Watertown country club where both men are members." Google reveals only one country club in Watertown (Oakley), and the Golf Handicap and Information Network shows Bray being a member of Oakley, with about a 14 handicap. (GHIN does not seem to have O'Neill in its system. [Update: It does, as "Patrick Oneill," and he's an Oakley member.])

Disclosure, or something: I lived in Watertown for a year once. I never joined the country club though.

2 It was Oakley. It's actually got a long history of financial scandal.

3 Or, of course, the SEC is just going country club by country club and yours is next once they finish with Oakley. It might be a while!

4 Also:

On September 13, 2010, the day O'Neill met with his supervisor -- and the day before he resigned from Eastern Bank -- O'Neill and his wife executed a deed transferring title in the house to O'Neill's wife alone.

5 Or golf course bar. It's actually not clear where the tip was passed; the SEC says the information was passed "on one or more of the occasions that they were together at the country club," and that "they socialized at the country club's bar."

6 The difference might just be factual: The executive in the last case might really not have known that his buddies were trading, while O'Neill might have known that Bray was. The FBI affidavit in the criminal case says as much: "O'NEILL disclosed the information to CC-1 [Bray] because of their personal relationship as friends and in furtherance thereof, and with the understanding that CC-1 would use the information to purchase and sell securities, and thereby receive illegal profits." Why the other executive would not have understood that his buddies would trade is a bit beyond me.

More substantively there is no real allegation that O'Neill disclosed the information for a personal benefit, which remember is a requirement of insider trading. The best the SEC can do is:

O'Neill tipped Bray with the expectation of receiving a benefit, and he in fact benefitted, including by currying favor with Bray and/or providing confidential information to a trading friend.

But that ... that isn't really a benefit is it?

To contact the writer of this article: Matt Levine at mlevine51@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.